[ExI] Psychology of markets explanations
max at maxmore.com
Tue Jun 2 00:59:33 UTC 2009
BillK posted a link to an article:
>By LOUIS UCHITELLE Published: April 17, 2009
>Look around you, George A. Akerlof and Robert J. Shiller say.
I've read a fair number of articles by Shiller, and have thought some
of his observations are pretty smart. For instance, see my review of
his "New Hope for Old Risks"
If you're not going to buy his co-authored book, Animal Spirits, he
conveys the main ideas in a McKinsey Quarterly article that I reviewed here:
One point Shiller makes (in a different article) is that if we had
had a futures market for mortgages/real estate, investors could have
sold mortgage investments short. This would have moderated the rise
in house prices (yes, thereby "smoothing out" the market moves).
As for the book, Animal Spirits (which I hope to find time to read),
I would point to Mark Skousen's comments in his Amazon review:
>hree serious mistakes , April 12, 2009
>By M. Skousen "author of 'The Compleated Autobio... (New York, New
>all my reviews
>I'm reluctant to criticize Yale's Robert Shiller, who has spoken
>highly of my own book "The Big Three in Economics," and who has an
>exceptional record in predicting the top of the stock market in 2000
>and the real estate markets in 2006.
>There are some good ideas and details in "Animal Spirits." For
>example, I didn't know that Enron abused the new "mark-to-market"
>rules established by the SEC to overbook profits (pp. 33-34).
>But I was surprised by the large number of gaffes made in "Animal
>Spirits," such as:
>1. The authors failure to include any reference to Milton Friedman
>and Anna Schwartz' classic "Monetary History of the United States"
>in explaining the cause of the Great Depression in the 1930s. They
>adopt an entirely outmoded Keynesian explanation, and make no
>reference to the collpase of the money stock during the early 1930s.
>As Friedman & Schwartz demonstrate, this monetary collapse was
>2. On page 130, Akerlof and Shiller claim, "In the absence of social
>security people would grossly undersave." Isn't it just the
>opposite? It is BECAUSE of social security that people grossly
>undersave, especially poor people who have no surplus left after
>shelling out 15% of their paychecks for FICA. In China, where there
>is no federal social security system, the Chinese people grossly oversave.
>3. On page 173, Akerlof and Shiller state, "Without intervention by
>the government the economy will suffer massive swings in
>employment." Again, shouldn't it be just the opposite? It is BECAUSE
>of intevention by the government that the economy suffers massive
>swings in employment and output. The authors themselves point to
>numerous examples in their book where government caused instability
>in the marketplace, such as the SEC "mark to market" ruling that
>helped Enron overvalue its assets....and Andrew Cuomo, HUD Secretary
>under Clinton, who "mandated lending by Fannie and Freddie to
>underserved communities....Cuomo forced Fannie Mae and Freddie Mac
>to make loans, even if that meant lowering credit standards." (page
>155) So who started the subprime lending scandal? The federal
>government (HUD and other agencies).
>In short, I question the whole thesis of this book, that "left to
>their own devices, capitalist economies will pursue excess....manias
>and panics." (preface) I defy the authors to show me an example of
>capitalism going haywire without bad government playing a
>significant role in the background.
Max More, Ph.D.
Extropy Institute Founder
max at maxmore.com
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